Friday, May 29, 2009

Is the quality of life in New Zealand over-rated?

Some New Zealanders might say that this is a question that only an Australian could ask, but it seems to me to be a good way to raise the issue that I want to discuss. (I hope that when I look back on this in a few days time it will still seem like a good idea!)

The ratings that I am writing about are the ladder of life ratings from the Gallup World Poll – the top step of the ladder represents the best possible life and the bottom step represents the worst possible life. But I could be referring to any of a range of surveys that ask people to place a numerical rating on how happy they are or on how satisfied they are with their lives.

I do not intend to argue that New Zealanders have a peculiar propensity to over-rate their satisfaction with their lives. The issue I want to discuss is what it means when surveys show that New Zealanders are just as satisfied with their lives as people in the U.S. even though average incomes in NZ are only about two-thirds of the U.S. level. I propose to compare the impact of income differences and other factors on the survey measures of subjective well-being in order to enable readers to consider whether the impacts attributable to income differences provide an accurate measure of its impact on the quality of lives.

It is now possible to make fairly accurate comparisons of the impact of income and other factors on average ratings of subjective well-being at a national level. Recent research by John Helliwell, Christopher Barrington-Leigh, Anthony Harris and Haifang Huang has shown that a high proportion of differences in average life evaluations between countries can be explained statistically by differences in a relatively small number of variables reflecting social, institutional and economic circumstances of life (See Table 3, ‘International Evidence on the Social Context of Well-being’, Working paper 14720, NBER, 2009). The most important variables are income (log of per capita GDP), friends (the proportion of survey participants who have relatives or friends they can count on for help when they are in trouble), freedom (the proportion who satisfied with their freedom to choose what they do with their lives) and corruption ( responses to questions relating to whether corruption is widespread throughout government and business).

In the Figure below I have used these research results to show reasons why average survey measures of subjective well-being in several countries differ from the U.S. ratings.

The net differences from U.S. ratings are shown next to the label for each country. If you focus on New Zealand you can see that the perception of NZers that their country is relatively free of corruption outweighs the negative impact on survey responses of the fact that average incomes in NZ are substantially lower than the U.S. average.

If you consider that corruption is as big a problem in the U.S as, for example, in Greece, you might think that this provides an accurate depiction of the relative impacts of income differences and corruption on the quality of life in New Zealand and the U.S. However, when I look at the expert ratings of corruption levels in Transparency International’s corruption index, the U.S. doesn’t look too bad. The rating of the U.S. in this index (7.3) is lower than Denmark and NZ (both on 9.3) and Australia (8.7) but well above Italy (4.8) and Greece (4.7). (It is also interesting that Greeks do not perceive that their corruption problem to be any worse than that in he U.S. and that NZers do not perceive themselves to be as free of corruption as the Danes).

The point is that the influence of various factors on the survey ratings of quality of life depends on the way they are perceived. The ratings are more like emotional responses than dispassionate evaluations. It seems to me that self-reports of how people feel about their lives tell us about their emotional states - which are an important component of well-being but do not tell the whole story.

One way to test survey ratings is to ask ourselves to what extent we would be prepared to rely on them in making decisions affecting our own well-being. It seems to me that income may be more important to people when they make decisions affecting their well-being than when they answer questionnaires about the quality of their lives. If you were in Europe contemplating a choice between moving your family to either the U.S. or NZ, would you consider the importance of differences in average income levels to be adequately reflected in survey ratings of the quality of life?

Postscript:Survey ratings can also be tested by comparing them with actual migration patterns where free migration is allowed - as between New Zealand and Australia. Migration statistics for New Zealand show that in recent years permanent and long-term departures to Australia have exceeded arrivals from Australia by a factor of more than 3:1.

6 comments:

Great analysis debunking qualitative measures of location satisfaction. I imagine that each attribute needs to be individually weighted, anyway. It's tough to dissociate emotions and perception from reality.

One very simple measure I'm tinkering with is computing the effective tax burden to which people are subjected. By this, I mean we have to aggregate all of the levies we experience, many of which are rather well hidden.

Just off the top of my head I am subject to federal and state income taxes, property tax, sales tax on most things I buy, embedded taxes on everything I buy since each company in the value chain is taxed, excise taxes, tariffs, monetary debasement, and all those odd little taxes tagged onto my phone bill and rental cars (not sure why these two are targeted for strange levies?), etc.

In total, a rough estimate is that I work for somewhere between 6-9 months of the year for Caesar. That's preposterous and unacceptable. My notion of optimal place to live would be one in which this quantity is minimized. I want to live for myself and my loved ones, not for the arbitrary whims of the State.

Ironically, the 16th Century Cypriots considered themselves enslaved to the Venetians for being forced to pay 1/3 of their income in taxes. The average Inca citizen had to pay 1/10 of annual output to the Emperor. Early American colonialists revolted in part because of trivial English tax levies.

I suppose the post does debunk the survey measures of quaity of life. But I think these measures can be useful as long as we keep in mind that they represent emotional responses rather than considered judgements. There is some evidence that they could even be measuring something relevant to migration decisions e.g. in Germany following reunification: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1092835

You make good points regarding taxes. When I did some work on this a few years ago the U.S. stood out as a relatively low tax country and NZ was a relatively high tax country. It is amazing how quickly government spending has increased in the U.S. - raising the prospect of future tax increases. I have the impression that NZ has probably been doing better than Australia and the U.S. in restraining government spending increases during the current recession. But NZ's recent budget contains forecasts of substantial increases of government spending as a percentage of GDP.

It is remarkable that there seems to be little public concern anywhere in the worlds about sliding down the slippery slope to serfdom. I wonder how long we will have to wait before the associated losses in well-being are reflected in the survey measures of quality of life.

It is odd that there is a general lack of care, as you said, in that the world is trending towards serfdom daily.

When we realize that the real rate of taxation is actually the real rate of spending, the situation becomes clear.

Politicians around the globe are cleverly taxing citizens implicitly through borrowing and currency debasement. These methods have a rich history in shackling civilizations.

At some point in the near future the general standard of living will reflect reality. I fear that the U.S. has the largest disconnect that will ultimately converge.

One thing my friend noted recently is that even in feudal societies there are upper classes. He lamented that we may not be able to turn the tide, in general, but could exploit the inevitable and ensure our places as the new aristocracy.

I'm happy with a quiet beach front property some place warm. Throw in a gorgeous senorita and I'm a happy guy...

The trolls and psychos are a problem on that site, but there are still some good old threads that viewers would find useful, such as the rental guide and deconstruction of their brand marketing ploys, analyses of the palm-greasing that produces the fluff lifestyle pieces, etc. Hiding accent to avoid the "migrant surcharge", experiences with medical care, etc.The people's attitudes make the higher cost of living even more difficult to bear.

Emancipation

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There is a list of my most popular posts below. I am pleased that a post about characteristics of a good society, that I wrote in 2009, is still one of the most popular. That post captures some of the ideas about freedom and individual human flourishing that I think are most important.